EFFECTS OF RISK-BASED INTERNAL AUDIT PRACTICES ON FINANCIAL PERFORMANCE OF INSURANCE FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
EFFECTS OF RISK-BASED INTERNAL AUDIT PRACTICES ON FINANCIAL PERFORMANCE OF INSURANCE FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA
Brian Wangira Were - Master of Science in Finance, School of Business, Economics, and Tourism, Kenyatta University, Kenya
Fredrick Warui - Lecturer, Department of Accounting and Finance, Kenyatta University
Grace Kariuki - Lecturer, Department of Accounting and Finance, Kenyatta University
ABSTRACT
As a primary business concern, financial performance is a key ingredient to overall stakeholder satisfaction. However, as evidenced by the statistical performance reports, it’s clear that insurance firms in Kenya continue to post results that do not align with shareholder expectations and the trend seems to be progressively detrimental to the financial health of this sector. Cumulatively, the reduction in the overall operating profits, the increase in management expenses, the decline in the return on equity, the increase in the insurance fraud cases, and the increase in cyber threats despite a consistent increase in the gross written premium income is a key concern and does not in any way depict the overall stakeholder expectations. Additionally, the digital wave equally threatens to bring along additional risks associated with data manipulation, cybercrime, and business operations sustainability owing to the increase in the adoption of technology and digital platforms as they seek to expand their reach, enhance customer service delivery, and enhance their efficiency. The study objective was to determine the effects of the risk-based internal audit approaches (Cybercrime security controls, data analytics, and disaster recovery controls) on the financial performance of insurance firms listed at the NSE, Kenya. Firm size was used to moderate between risk-based approaches and insurance financial performance. Positivist research philosophy and causal research design were adopted where 6 Insurance firms licensed to trade at the NSE, Kenya were surveyed. Both primary and secondary data were used and were analyzed using both descriptive and inferential statistics and presented using graphs, statistical tables, and pie charts. The study found that Cybercrime security controls, data analytics controls, and disaster recovery controls had a statistically significant positive effect on the financial performance of Insurance firms listed at the NSE, Kenya. On the contrary, firm size was found not to have a statistically significant moderation effect on the risk-based internal audit approaches. The study concluded that firms that had Cybercrime security controls, data analytics, and disaster recovery controls in place were noted to have an increased operational efficiency that ultimately drove financial performance. Consequently, the study recommended that it would be prudent enough for insurance firms across the board to put in place a clear framework that seeks to embed Cybercrime security controls, data analytics controls, and disaster recovery controls through the Internal Audit units as a way of enhancing their operational efficiency which is what drives the control on the usage of the revenues generated.
